US financial body Fed is trying its level best to avoid another bear stearns by pushing Lehman Brothers struggle and overcome their losses. Read this in businessweek recently!!!
Well , Lehman bet on mortgage business has taken them into bad debt and now they are next bear stearns in making. Fed however is trying best to avoid this situation since that would take away all the trust from i-bank world.
Although, Lehman is smallest of top10 i-banks, its fallout could further worsen the global economy through ripple effects
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First, Lehman Bros. is NOT a Bear Stearns kind of a situation. They have significantly higher cash reserves and do not face a liquidity issue. They, along with all the banks on the street also have access to the Fed reserve funds. This means that theoretically there can be no run on the bank.
That said, as one of the few pure play investment banks on the street, its fall out would have major implications on the world economy and not just that of the US.
Well, Lehman is actually in financial trouble, its just that Fed is boosting it. I hae read this in n number of places.
That is actually only partly true. Lehman is in trouble. It had its first ever quarterly loss since it was spun off from American Express and went public. Its closed it mortgage origination business. It has significantly delevered and business returns are low.
Nevertheless, it has been a victim of short sellers and market sentiments more than anything else. Its financial position is a lot stronger than what its current valuation is and hence is fairly undervalued.
Lehman Bros. has not accessed the Fed funds other than once, at a time when they had sufficient funds merely for the purpose of a 'test run'. To the contrary, the Fed will intervene only in a panic situation as it has received a lot of flak for its bail out of Bear Stearns.
- Someone who worked with Lehman Brothers and is in Investment Banking on Wall Street!
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